BLBG:Treasuries Set for Weekly Loss on Europe Efforts to Stem Crisis, Jobs Data
Treasuries headed for a weekly loss as European officials took steps to contain the region’s debt crisis and data signaled improvement in America’s economy.
U.S. government securities have declined 0.5 percent in 2012, while company debt returned 3.3 percent, Bank of America Merrill Lynch data show. The Standard & Poor’s 500 Index of stocks returned almost 10 percent, including reinvested dividends, according to data compiled by Bloomberg. Federal Reserve Chairman Ben S. Bernanke said central bank efforts to spur growth are sending shares higher.
“We’re looking for yields to go slightly higher” in the U.S., said Tomohisa Fujiki, an interest-rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo. “The European situation is getting better. That’s helping boost equity markets, weighing on risk-free securities such as Treasuries.”
U.S. 10-year yields held at 2.03 percent as of 2:05 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security maturing in February 2022 changed hands at 99 3/4. Yields climbed five basis points this week, or 0.05 percentage point, the most since the period ended Feb. 10.
Japan’s 10-year rate rose one basis point to 0.985 percent, the highest since Feb. 10.
Bernanke defended the U.S. central bank’s expansive monetary policy, telling a Senate hearing yesterday that it helped bring jobs and stabilize prices.
‘Big Gains’
“We’ve had about 2.5 million jobs created,” since November 2010, Bernanke said, referring to when the Fed started its second round of large-scale securities purchases. “We’ve seen big gains in stock prices, improvement in credit markets.”
The drop in U.S. government bonds marks a reversal from 2011, when Treasuries returned 9.8 percent and the S&P 500 gained 2.1 percent.
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap long- term borrowing costs under a program it plans to conclude in June. The central bank plans to purchase as much as $2.25 billion of debt due from February 2036 to February 2042 today under the plan.
Euro-area banks tapped the European Central Bank for a record amount of three-year cash on Feb. 29, raising expectations the companies will pump the money into the economy. The Frankfurt-based ECB said it will lend 800 financial institutions 529.5 billion euros ($705.4 billion) for 1,092 days. European leaders agreed this week to provide capital faster for the planned permanent bailout fund for indebted governments.
Haven Demand
Investors who are betting on Treasuries say the securities still have appeal as a haven. Demand for the relative safety of U.S. debt is keeping 10-year yield within 36 basis points of the record low.
The global economy faces “major downside risks” as its recovery continues to be threatened by stresses in the euro area, the International Monetary Fund said in a report yesterday.
Costs in the economy will stay in check, said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $40.4 billion.
“Investors will focus on deflation,” Nakamura said. “When that happens, yields will start to decline.” Ten-year yields will fall to 1.5 percent by June 30, said Nakamura, who predicted last year’s Treasuries rally.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, was 2.29 percentage points. The decade-long average is 2.14 percentage points.
Recovery Signs
Five-year inflation swaps, which allow investors to exchange fixed-interest rates for returns equivalent to the consumer price index, were 2.40 percent.
Treasuries fell yesterday as data showed initial jobless claims in the U.S. matched a four-year low. Consumer confidence rose to the highest level in a year, industry figures showed Feb. 28. A government report on March 9 will probably show nonfarm payrolls grew by 206,000 in February, after gaining 243,000 the previous month, according to a Bloomberg News survey of economists.
Western Asset Management Co., which oversees $443.1 billion and is based in Pasadena, California, is recommending emerging- market corporate bonds.
The securities offer “attractive income and total return potential,” according to a report yesterday on the company’s website. The document didn’t identify the author.
Swap Rates
Yields indicate investors have greater demand for securities beyond the government bond market.
The difference between U.S. two-year swap rates and the yield on same maturity Treasuries shrank to 25 basis points today, the least since August.
Investors use swaps to exchange fixed and floating interest-rate obligations. The difference, the gap between the fixed component and the Treasury rate, is a gauge of investor demand for higher-yielding assets.
The 10-year rate will advance to 2.50 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net;
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
